March 22, 2017

Charities Need to Increase Giving, Not Just Ask for Tax Breaks

As Congress and President Trump get serious about changing the tax code, charities will be doing all they can to protect incentives to encourage giving. But they could strengthen their case by showing they are also doing all they can to promote a more generous America, where its citizens give more of their time and money and charities put those donations to ever better use.

Here are some ideas to consider:

Join together for a national campaign to promote giving.

The same economies of scale that apply to national marketing campaigns for goods and services would work for charities. There is a reason that corporations combine to market continually for, say, major-league baseball, pork, milk, and other products.

To be sure, some groups have undertaken limited efforts to encourage generosity. Giving Tuesday is a great recent example of a drive that has gone national to encourage charitable donations, and decades ago Independent Sector urged Americans to "give 5" with the idea that 5 percent is the right percentage of income for the average citizen to give annually. But whatever their merits, these campaigns so far have not lasted long enough to make a difference or are limited to a specific day each year or particular formula for giving.

Why not encourage charitable giving as a way to mediate more disputes?

Though I claim no special expertise in designing a marketing campaign, I co-founded and later chaired the efforts of a relatively new community foundation in Alexandria, Va. There we took advantage of our mission to advertise for all Alexandria charities in ways that individual charities could not. People were more likely to contribute to a community wide effort than an appeal from one organization only.

Here are three ideas of what might be marketed on a national level—a hint only, I am sure, of what more ingenious marketing experts might be able to cook up:

  • Tell simple but powerful human-interest stories extolling generous people. People are hungry for great stories of compassion and outreach, especially when today’s news leaves us drowning in stories of personal and political self-absorption. Such human-interest stories should emphasize reasonable ways that we could emulate people, rich and poor alike, who devote significant shares of their income, wealth, or time to worthy causes.

  • National appeals to give to a particular need or charity, on the other hand, don’t really ask individuals to raise their overall level of involvement, as when they may respond by simply shifting giving from one cause to another.

  • Help donors find worthy programs to support. It’s possible that one factor inhibiting giving is donors’ concern over whether their gifts will be used effectively. So national marketing efforts should encourage not just giving more but giving well.

  • One type of campaign might well instruct donors on accessing Charity Navigator, GuideStar, GiveWell, and the Better Business Bureau’s Wise Giving Alliance, contacting their local community foundation, or tapping other sources that help donors in their research for efficient charities. It could provide simple explanations of how to find the compensation of charity leaders, costs of operation, complaints about charities, and other "consumer" information.

    Boosting the public’s confidence in the nonprofit world, rather than precisely identifying a select group of charitable organizations to support, is the goal.

  • Encourage people to give to charity when they settle disputes. If a national marketing effort could be undertaken, I would hope that it would be daring and assume some risks. To suggest just one example, why not encourage charitable giving as a way to mediate more disputes? In many conflicts between individuals, whether of a business or personal nature, such as divorce, it’s not just money that is at stake but each party’s sense that capitulation would reinforce the bad behavior of the other.

Why not try to expand the occasional practice of using charitable giving as a way to mediate settlements over money or compensation? Maybe John and Mary can’t agree on what share of resources each deserves in their divorce, but they might agree to give the amount in dispute to charity. Maybe a team owner can’t reach agreement with a sports player without breaking a team salary cap but could negotiate an additional amount to charity.

Suppose a crime or breach of contract has been committed. A donation to charity might be a better way to move on than some other punishment or fine.

Help people understand the percentage of their wealth they can afford to give.

Research on individuals filing estate tax returns, even in periods when the dollar value of estates subject to levies was much lower than today, reveals some startling facts. Many people who give quite generously at death do little during their lifetimes and vice versa. On average, individuals with significant wealth give away 35 times as much at death than in any year of life. One explanation for this behavior is that a hearse doesn’t have a carriage rack, whereas during life people can always think of one more risk they might face. But, in truth, many of those people have far more wealth than they would ever need to deal with those risks, and insurance is available against many of them.

It’s almost always smarter tax-wise to give during life. Gains on assets held by the prospective donor are subject to taxation as they grow. If those assets are donated immediately, the charity can enjoy tax-free investment growth — or spend the money if there are pressing needs that can’t wait.

Many people who give quite generously at death do little during their lifetimes, and vice versa.
There’s a simpler explanation for this reluctance to give out of wealth, even when quite affordable, one that I’ve tested at times in raising funds for the community foundation in Alexandria: People just think differently when giving out of their wealth than out of their income. Consider a moderately wealthy retired person with no wages but, say, $5 million of wealth (e.g., a home, a vacation house, and stock paying a low dividend rate of 2 percent). She might recognize in cash or taxable income $100,000 annually from those investments, but in all likelihood she earns or has earned much more in the form of appreciation on her stock and real-estate assets.

Looking only at the cash income, even the most generous individual with that amount of wealth might conclude she cannot afford to give away even $50,000. After all, that would be half the earnings she would see flow into her bank account in a year. But it would be just 1 percent of her wealth.

For reasons like this, I’m convinced that many people give more when asked to think about sharing their wealth, not just their income. It’s at least a hypothesis we can test. The success of the giving pledge made by Bill and Melinda Gates, Warren Buffett, and other high-wealth individuals offers evidence: Individuals were asked to pledge out of their wealth, not their income.

Here are two ideas for promoting giving out of wealth:

  • Run endowment campaigns. Conduct broad campaigns to endow charities in local or regional areas, with particular focus on planned giving through wills, lifetime gifts, and donor-advised funds. Here again, a combined effort might be most efficient, as individual charities often lack the resources, knowledge, and ability to focus long-term or the incentive to carry along their sister charities. Think "Endow Alexandria" or "Endow Minneapolis."

  • Such an effort in some ways is a logical extension of efforts related to giving days, such as Giving Tuesday or Alexandria’s Spring2Action. Charities can take what they learn about marketing and fundraising for giving days and apply that knowledge to raising money together for endowments.

  • Organize wealth advisers to do more. Community foundations and similar enterprises like the Jewish Federations of North America understand the value of eliciting help from wealth advisers, lawyers, accountants, and others who can advise their clients to list charities in their wills and give to donor-advised funds.

  • This is another way to emphasize giving out of one’s wealth that could be expanded nationally through modest subsidies for gatherings of these experts, prestige awards for communities that engage such advisers, and occasional advertising and soliciting in these professional communities.

In many ways, these ideas are not new, but they’ve never been applied at a sustained level. Nor was it realistic to think that past efforts could measure some extraordinary return on relatively small and temporary investments. While we can debate what ideas are most worth trying, there should be no question that it’s imperative for nonprofits to make their own efforts to increase the share of giving — now at about 2 percent of national income. Doing that might not only raise significant sums for great causes but also demonstrate that nonprofits are willing to take on the same challenge to raise giving rates that they put to Congress in its consideration of tax reform.

(For more ideas about how Congress can do that in a way that makes sense, see this article I wrote in The Chronicle’s March issue.)

Eugene Steuerle is co-founder of the Urban-Brookings Tax Policy Center and has worked on tax-overhaul efforts at the Treasury Department.